l What is the tax implication if I do a gift deed and transfer a property to my son who has turned 21?—S. K Raghav
Any property received by an individual from a relative by way of gift is not taxable in the hands of the recipient. Since a son is expressly included within the definition of relative under the Act, the receipt of immovable property by a son from his parent by way of gift is fully exempt from tax, irrespective of the son’s age. Any income arising from such property or capital gains on its subsequent transfer shall, however, be taxable in the hands of the son in accordance with the provisions of the Act, where the cost of acquisition shall be deemed to be the cost incurred by the parent. Correspondingly, no capital gains tax arises in the hands of the parent at the time of gifting, as the transfer is without consideration.
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l I have shares in my personal demat account and want to transfer them to my newly formed private limited company, where I am the director. Can I transfer the shares, and what is the tax implication for both?—Suchit Surana
Under the Income-tax Act, 1961, shares held by an individual in a personal demat account may be transferred to a private limited company in which the individual is a director and/or shareholder. From a tax standpoint, the transfer of shares constitutes a transfer of a capital asset in the hands of the individual and may give rise to capital gains tax, depending on whether the shares are listed or unlisted and the applicable holding period. In the hands of the company, where the shares are acquired for a consideration lower than their fair market value, the differential amount may be taxable as income under Section 56(2)(x). Thus, the transaction is not tax-neutral and requires careful valuation, pricing and documentation to ensure tax compliance and mitigate potential tax exposure.
l How do I calculate the capital gains if I sell some units of equity mutual funds bought five years ago?—Deepak Ojha
The taxability of capital gains is determined primarily with reference to the holding period of the capital asset. In the case of equity-oriented mutual funds, units held for more than 12 months are classified as long-term capital assets. Since the equity mutual fund units were acquired five years ago, the gains arising on their sale would qualify as long-term capital gains (LTCG) taxable at 12.5% on gains exceeding Rs 1,25,000.
The writer is tax partner, AKM Global, a tax and consulting firm. Send your queries to fepersonalfinance@expressindia.com